With financing still tight for many current and would-be business owners – indeed, the December 2012 Thomson Reuters/PayNet Small Business Lending Index shows lending slowly improving, but still far below the highs it reached in 2006 and 2007 – alternative methods of financing are capturing attention.

One such method is what’s known as the rollover-as-business-startups (ROBS). Under this approach, an individual interested in starting or purchasing a business or franchise operation uses his or her retirement assets to finance the deal without incurring taxes or penalties. While turning to one’s retirement funds to start business sounds risky – indeed, it’s not a move to be made lightly – it can be less risky than using traditional financing, says David Nilssen, co-founder and CEO of Guidant Financial, a Seattle-based financial firm specializing in alternative financing for business owners.

Nilssen, whose firm has helped create more than 7,000 businesses, explains why. An individual who is going to finance the purchase or creation of a business with a loan typically will have to pledge his or her home, credit and personal assets as collateral, while also coming up with some sort of down payment. “If they’re not successful, it’s a catastrophic financial event,” he says.

By turning to a retirement account, the would-be business owner doesn’t have to pledge assets or acquire debt, Nilssen points out. “You underwrite your own transaction and the risks are actually lower.”

Moreover, most of Guidant’s clients don’t drain their retirement accounts completely dry when financing their businesses. Based on client surveys, about 60 percent are using less than 75 percent of their retirement assets, Nilssen says.

They appear to be putting it to good use. Dun & Bradstreet’s figures show that only about 39 percent of small businesses remain open after about four years, Nilssen says. While Guidant doesn’t have exactly comparable numbers for the percentage of its clients that are in business after four years, they can turn to a close proxy: When an individual works with Guidant to use retirement assets to fund a business purchase or start-up, Guidant then provides some required administrative services on an annual basis. After four years, about 80 percent of Guidant’s clients still are using these services, Nilssen says. “The success rate is much higher.”

Just how does a potential business owner use his or her retirement assets to start a business? First, Guidant establishes a corporation for the client; this becomes the operating entity. A 401(k) account then is established for the business. Once that’s done, Guidant rolls the business owner’s existing retirement assets into the account; the assets typically can come from an IRA, another 401(k) or another retirement fund. The new 401(k) then becomes a shareholder in the new business.

Most of Guidant’s deals run about $180,000. The types of business entities for which the funds are used are split fairly equally between start-ups of brand new businesses, purchases of existing businesses, and purchases of franchise businesses, Nilssen says. He estimates that this has become the most popular method of financing for franchise purchases of up to about $300,000, aside from cash.

Over the past ten years, Guidant has helped business owners invest more than $3 billion in their ventures. Together, the businesses created employ more than 50,000 people, Nilssen says “We’re creating legitimate businesses that put people to work.”